The 1929 Stock Market Crash - Black Thursday - Extra History

Summary

Herbert Hoover's 1929 inauguration marked the peak of America's economic optimism, with the stock market hitting an all-time high. However, underlying issues like bad loans and the practice of buying on margin set the stage for disaster. Within months, the stock market crashed, beginning with Black Thursday and culminating in Black Tuesday. The crash triggered a chain reaction, including bank failures and rising unemployment, leading to the Great Depression. The video highlights the contrast between the booming economy of the late 1920s and the harsh realities that followed, emphasizing the fragility of economic confidence and the lasting impact of the crash.

Takeaways

• 😀 Hoover's inauguration speech in 1929 emphasized the country's prosperity and the idea of a higher degree of individual freedom and comfort, marking an optimistic tone for the future.
• 😀 Despite Hoover's positive rhetoric, the U.S. economy was already showing signs of instability, particularly in the stock market, which had been experiencing a rapid, unsustainable rise since 1921.
• 😀 The phenomenon of 'buying on the margin' had become widespread, allowing everyday Americans—including factory workers and small business owners—to invest in the stock market with borrowed money, amplifying financial risk.
• 😀 The 1920s economic boom was fueled by easy credit and installment buying, allowing businesses to expand and families to purchase goods, but this also created an unsustainable debt burden across various sectors, including agriculture.
• 😀 Farmers, in particular, had taken on significant debt to mechanize and increase production, but the overproduction of cheap agricultural goods made it harder for them to repay their loans, leading to a financial squeeze.
• 😀 The Federal Reserve raised lending rates in 1929 to curb speculation, but this had negative global repercussions, causing many European countries to enter recession, adding to the uncertainty in the market.
• 😀 Despite warnings from market analysts about the overvaluation of stocks, the market continued to climb until Black Thursday on October 24th, 1929, when panic selling began and the market lost 11% of its value within minutes.
• 😀 On Black Thursday, several major bankers stepped in to stabilize the market by making large purchases of stocks, temporarily halting the decline, but this only postponed the inevitable crash.
• 😀 Black Monday (October 28, 1929) and Black Tuesday (October 29, 1929) saw further panic and massive stock losses, with the Dow losing more than 23% of its value in just two days, signaling the start of a deep financial crisis.
• 😀 The stock market crash in 1929 is often mistaken for the Great Depression itself, but the depression did not fully set in until months later, as banks failed and unemployment soared due to a combination of bad loans and a plummeting economy.
• 😀 The long-term effects of the crash led to widespread hardship: unemployment reached unprecedented levels, Ford's assembly line came to a halt, and social unrest grew, with the government deploying military force against protesting veterans.
• 😀 While the Great Depression was severe, the script ends on a note of resilience, emphasizing that the U.S. eventually recovered from these crises, with perseverance and cooperation being key to overcoming the tough times.

Q & A

What was Herbert Hoover's central message during his inauguration in 1929?

Herbert Hoover's central message during his inauguration was one of optimism, emphasizing that America had reached a higher degree of comfort, security, and individual freedom than ever before. He expressed unwavering confidence in the future and in the integrity of the American people.

How did the stock market behave in the late 1920s, and why did it seem like a 'sure thing'?

The stock market in the late 1920s experienced a rapid and consistent rise, increasing six-fold from 1921. This made investing seem like a 'sure thing' to many, especially because of the practice of 'buying on the margin,' where investors could borrow money to purchase stocks, and profits seemed guaranteed as stock prices kept climbing.

What was the practice of 'buying on the margin' and how did it contribute to the stock market crash?

'Buying on the margin' allowed investors to purchase stocks by borrowing a large portion of the funds from brokers. The investor only needed to pay 10% of a stock's value upfront, and when stock prices rose, they could sell to repay the loan and keep the profits. However, when the stock prices fell, investors faced margin calls, leading them to sell their stocks at a loss, which contributed to the market crash.

What role did easy credit play in the economic boom of the 1920s?

Easy credit fueled the economic boom of the 1920s by enabling businesses and consumers to borrow money easily for expansion and purchases. This included loans for buying stocks, home goods, and automobiles. The widespread availability of credit created a bubble of debt, which ultimately became unsustainable when the economy began to falter.

How did the Federal Reserve respond to concerns about margin buying in 1929, and what was the outcome?

In 1929, the Federal Reserve raised lending rates to discourage margin buying, which in turn caused many central banks in Europe to match the higher rates. This tightening of credit led to economic instability, contributing to a global recession and weakening market confidence just before the stock market crash.

What were the immediate effects of Black Thursday on the stock market and investor sentiment?

Black Thursday, on October 24th, 1929, saw a dramatic 11% loss in the stock market within minutes. The panic was contagious, with traders screaming and shoving on the floor, and many people began to believe rumors that stockbrokers were committing suicide. While a group of bankers tried to stabilize the market by purchasing stocks, the psychological damage had already begun to take hold, and confidence in the market was shaken.

How did the intervention by major banking figures during the crash impact the stock market?

A group of prominent bankers, including the heads of Chase National Bank, Morgan Bank, and National City Bank, intervened by purchasing large amounts of stock, such as US Steel, at inflated prices. This temporarily stabilized the market and halted the immediate panic, but it was not enough to prevent the ongoing decline.

What is the difference between the stock market crash and the Great Depression?

The stock market crash of 1929 was a dramatic drop in stock prices, particularly from October 24th to October 29th, which marked the beginning of the economic collapse. However, the Great Depression, which followed, was a prolonged period of economic hardship that lasted until the late 1930s. The crash itself didn't cause the Depression, but it contributed to a loss of consumer confidence, leading to widespread unemployment, bank failures, and a downturn in industrial production.

Why did the stock market continue to decline after the brief stabilization efforts of the banking consortium?

After the initial stabilization by the banking consortium, investor confidence remained shaken. The margin calls began to pile up, and with the market showing no signs of recovery, investors rushed to sell their stocks. Without sufficient buyers to absorb the sell-off, the market continued its downward spiral.

How did the stock market crash affect ordinary Americans, including farmers and small investors?

The stock market crash devastated ordinary Americans, especially small investors who had borrowed heavily to buy stocks. Farmers, who had borrowed money to mechanize their operations, were also impacted by the crash, as falling crop prices and increased debt made it difficult to recover. Many lost their savings, homes, and businesses, and the crash signaled the beginning of widespread economic hardship.